Summary
rejecting Vireo as conflating repudiation and waiver
Summary of this case from Haddock v. QuinnOpinion
No. 05-06-00222-CV
Opinion Filed October 18, 2006. DO NOT PUBLISH. Tex.R.App.P. 47.
On Appeal from the 101st Judicial District Court, Dallas County, Texas, Trial Court Cause No. 05-11716-E.
Reverse and Remand.
Before Justices WRIGHT, O'NEILL, and LANG-MIERS.
MEMORANDUM OPINION
This issue in this case is whether appellant PracticeHwy.com, Inc. waived its right to arbitrate its claims against appellees Albany IVF Fertility and Gynecology, PLLC, Dr. Peter Horvath, individually and d/b/a Albany IVF, PC. The trial court concluded that it did so and denied PracticeHwy's motion to compel arbitration. Because we conclude the trial court erred, we reverse the trial court's order and remand with instructions that the trial court enter an order compelling arbitration.
PracticeHwy makes software that is designed to enable fertility clinics to better manage their patients' care. PracticeHwy and appellee entered into an agreement in which PracticeHwy agreed to licence several copies of its software to "Albany IVF, P.C." Dr. Peter M. Horvath signed the agreement as Albany IVF's owner. The agreement contained a provision that required all disputes arising under the agreement be resolved by arbitration.
Disputes between the parties soon arose and both parties allegedly threatened to terminate the licencing agreement. On November 21, 2005 PracticeHwy filed suit against appellees for breach of contract, misappropriation of trade secrets, conspiracy to misappropriate trade secrets, and unjust enrichment. On the same date it filed suit, PracticeHwy sent appellees a letter informing them it had filed suit, but also stating "[c]onsider this a Demand for Arbitration under . . . the Agreement. Please let us know if you plan on agreeing to submit the above referenced cause to the American Arbitration Association in accordance with the Agreement, and I will submit an Agreed Order to the Court." In its letter, PracticeHwy included a "courtesy copy" of the petition it had filed that day.
Although PracticeHwy never served appellees, appellees answered nine days after suit was filed. In their answer, appellees asserted counterclaims for fraud/fraudulent inducement, negligent misrepresentation, breach of contract, DTPA violations, theft of property, and conversion. They sought punitive damages and temporary and permanent injunctive relief. On December 14, 2005, the parties entered into an agreed temporary injunction enjoining PracticeHwy from taking any actions restricting appellees' access to their patients' files and requiring appellees to continue to pay for use of the software.
On the same day as the agreed temporary order, less than one month after filing suit, PracticeHwy filed a motion to stay and motion to compel arbitration. In their response to the motion, appellees did not dispute that all the claims between them and PracticeHwy were within the scope of the arbitration agreement. Instead, appellees claimed PracticeHwy waived its right to compel arbitration by filing suit without requesting the trial court, at that time, to enforce the arbitration agreement. PraticeHwy further asserted it suffered prejudice from appellees' actions. The trial court denied PracticeHwy's motion to compel. This interlocutory appeal followed. See Tex. Civ. Prac. Rem. Code Ann. § 171.098(1) (Vernon 2005).
In its sole issue, PracticeHwy contends the trial court erred in denying its motion to compel arbitration. The issue of whether PracticeHwy waived its right to arbitrate is a question of law which we review de novo. Tex. Residential Mort., LP v. Portman, 152 S.W.3d 861, 863 (Tex.App.-Dallas 2005, no pet.). When a valid arbitration clause exists, a strong presumption exists against waiver. Cf. In re D. Wilson Const. Co., 196 S.W.3d 774, 783 (Tex. 2006) (applying FAA); Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex. 1995) (Federal and state law strongly favors arbitration of disputes); Transwestern Pipeline Co. v. Horizon Oil Gas, Co., 809 S.W.2d 589, 592 (Tex.App.-Dallas 1991, writ dism'd w.o.j.); Marble Slab Creamery, Inc. v. Wesic, Inc., 823 S.W.2d 436, 438 (Tex.App.-Houston [1st Dist.] 1992, no writ). The burden to establish waiver is heavy. Tex. Residential Mort., 152 S.W.3d at 863. Waiver will be found only when the party seeking arbitration has substantially invoked the judicial process to its opponent's detriment. In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex. 1998) (applying FAA). The opposing party must affirmatively show it suffered prejudice as a result of the other party's invocation of the judicial process. See id. Further, any waiver of an arbitration right must be intentional. Tex. Residential Mort., 152 S.W.3d at 863.
PracticeHwy sought arbitration solely under the Texas Arbitration Act. Thus, the sole issue is whether arbitration should have been compelled under that Act. However, both parties cite cases decided under the Federal Arbitration Act and cite to no differences under the Acts regarding principals of waiver and make no effort to differentiate between the two Acts. The standard for determining waiver is generally the same under both Acts. Brown v. Anderson, 102 S.W.3d 245, 250 (Tex.App.-Beaumont 2003, no pet.); Sedillo v. Campbell, 5 S.W.3d 824, 826 (Tex.App.-Houston [14th Dist.] 1999, no pet.). Consequently, we rely on cases decided under both Acts.
After reviewing the record, we conclude appellees did not meet their heavy burden of establishing waiver in this case. Appellees assert PracticeHwy waived its right to arbitrate based entirely on the fact that it "unconditionally" filed suit without seeking enforcement of the arbitration clause in the suit. We agree that filing suit on an arbitrable claim is an important factor in determining waiver. See, e.g., Miller Brewing Co. v. Fort Worth Distributing Co., 781 F.2d 494, 495 (5th Cir. 1986). However, it is not alone determinative. See id. (considering suit as one factor). Rather, we must consider all the relevant facts and circumstances and determine whether PracticeHwy intentionally waived its right to arbitration. See In re Crysen/Montenay Energy Co., 226 F.3d 160, 163 (2nd Cir. 2000) (there are no bright line rules for determining waiver under the FAA); In re Certain Underwriters at Lloyd's, 18 S.W.3d 867, 872 (Tex.App.-Beaumont 2000) (orig. proceeding) (same). Here, on the same day PracticeHwy filed suit, it sent appellees a letter in which it acknowledged that it filed suit, but also specifically demanded arbitration and requested appellees to agree to arbitration. Further, PracticeHwy did not seek service on appellees and took no further steps regarding its suit other than to agree to a temporary injunction. Then, less than one month after filing its suit, it moved the trial court to stay and compel arbitration. Under these circumstances, we conclude appellees did not establish PracticeHwy intentionally waived its right to arbitrate.
In reaching this conclusion, we reject appellees assertion that PracticeHwy waived the arbitration provision by repudiation. According to appellees, at the moment PracticeHwy filed suit, it vested a right of election in appellees to elect either litigation or arbitration. They assert they elected litigation by filing their answer. Appellees rely upon Vireo PLLC v. Cates, 953 S.W.2d 489, 491 (Tex.App.-Austin 1997, pet. denied).
Utilizing the doctrine of repudiation, the Vireo court adopted a bright-line approach to determining waiver in cases where a plaintiff files suit and then seeks arbitration. The court held that "[a] plaintiff who sues on an arbitrable claim unconditionally, without having initiated arbitration of the claim or demanding specific performance of the arbitration agreement, creates in the defendant a right of election — the defendant may insist or not upon arbitration, as he chooses." Vireo, 953 S.W.2d at 491. If a defendant does not insist upon arbitration, the parties have "mutually repudiated" the arbitration agreement as a matter of law and "waived" any right thereunder. Id. Vireo is the only case appellees have cited, or that we have found, that has adopted this bright-line rule. While presumably basing its decision on the doctrine of repudiation, the Vireo court did not discuss all the elements of repudiation and appears to have conflated law relating to repudiation with law related to waiver. We do not disagree that an arbitration clause, like other contractual provisions, can be mutually repudiated. However, we disagree with the Vireo court's apparent bright-line rule. Repudiation is based upon a mutual agreement. It occurs when one party's conduct establishes a fixed intention to abandon, renounce, and refuse to perform the contract. SAVA gumarska in kemijska insustria d.d.v. Advanced Polymer Sciences, 128 S.W.3d 304, 315 (Tex.App.-Dallas 2004, no pet.). The repudiation must be absolute and unconditional. See El Paso Production Co. v. Valence Operating Co., 112 S.W.3d 616, 621 (Tex.App.-Houston [1st Dist.] 2003, pet. denied). The other party may then either accept the repudiation or insist on performance. Id.
Here, although PracticeHwy filed suit, it did not seek service of process, and more importantly sent appellee a letter demanding arbitration that same day. PracticeHwy's actions thus did not demonstrate a fixed intention to refuse to arbitrate. To the extent filing suit was inconsistent with arbitration, it certainly was not an "absolute and unconditional" refusal to arbitrate. To the contrary, PracticeHwy expressly told appellees that it wanted to arbitrate and sought their agreement to do so. It formally requested arbitration in the trial court less than one month later. We conclude the arbitration clause was not repudiated by mutual agreement. Furthermore, to establish waiver a party must show it was prejudiced by the other party's invocation of the judicial process. Appellees have not established any such prejudice. The only evidence appellees presented to support their claim of prejudice was the affidavit of their attorney stating he and his colleges have invested over 150 hours "in this litigation" and asserted that the reasonable and necessary attorney's fees for the legal services provided exceeded $50,000. There is, however, no evidence that the time and funds expended would not have been expended or inured to appellees' benefit in arbitration. See Transwestern Pipeline Co., 809 S.W.2d at 593 (failing to find prejudice when no evidence fees expended would not be of benefit in arbitration). Moreover, the costs incurred were largely "self-inflicted." While appellees were cast as defendants in the litigation, their actions were not primarily defensive. Specifically, knowing PracticeHwy wanted to arbitrate and before being served, appellees filed their answer raising numerous counterclaims and seeking injunctive relief. Therefore, no showing of prejudice has been established. See Transwestern Pipeline Co., 809 S.W.2d at 593 (failing to find prejudice when "wounds" were "self-inflicted").
We conclude appellees failed to show PracticeHwy waived its right to arbitrate. Consequently, we reverse the trial court's order and remand with instructions that the trial court enter an order compelling arbitration.